Cody Willard’s top stock picks

By Cody Willard

Here’s an condensed compilation of my posts about the stocks and options that I traded in my personal account last week, with an update on how I’m trading Riverbed at the end. You can get access to a condensed version of my trades for free every Friday by signing up for my weekly Marketwatch Revolution Investing newsletter at http://marketwatch.com/cody for $99 a year. Or you can get access to all my trades in real-time (and get access to all my my investment eBooks, including 50 Stocks for the App Revolution and 14 Stocks That Should Double and 6 That Should Collapse) at http://TradingWithCody.com for $99/month.

Monday 4/11/2011

Okay, as we start this week, I’m well-rested, prepared and ready to confront earnings season with a clear head and emotions checked. I’ll readily admit that I’m outright excited to see how our stocks react to earnings season. I do think some of the recently highlighted near-term earnings trades are technically set up nicely and will work out profitably for us in the near-term if we can nail some of the fundamental analysis.

I don’t expect I’ll be putting on much trades on Monday and Tuesday, but we’ll start getting some earnings as the week progresses and we’ll start seeing how we’ve gauged the above this go ’round. I’ll highlight which stocks I’m most heavily positioned for earnings moves today and tomorrow instead of just which trades I’m making. Let’s rock.

———————————————————————————————————–

I nibbled on some Adtran common stock. And I shorted a tiny bit of Cablevision. These two trades aren’t necessarily for earnings season or anything…they’re longer term positions that I just didn’t have on the sheets yet.

This one is a high-risk/high-possible-return set up into earnings, as I do expect a strong report and with the recent pullback/consolidation in the stock coming down a good 10% from its recent new highs, the options in this name have some pretty big premiums, so I wouldn’t just plow into calls in this one, but I do think it is a good long-side common stock trade into earnings, and I wouldn’t be shocked to see this stock in the mid-to-high-fifties in coming months if the report is indeed good.

———————————————————————————————————–

Well, wasn’t that exciting? The DJIA finished up 1/100th of 1% higher by the close. And we came in for that action today! Sigh. Earnings start full blast tomorrow and by Thursday after the close we’ll have tech biggie Google reporting. I’m long a small common stock position in Google as we enter that report, and I’m mostly going to be looking for Google as a good “tell” into the rest of earnings season. Let’s get these reports started already though! See ya manana.

———————————————————————————————————–

Tuesday 4/12/2011

Once again it looks like we will muddle through the day as we have barely gotten to the tip of the earnings iceberg. Riverbed is down more than a buck fifty…sort of like a two-by-four across the forehead with your morning coffee. As you know, I am trying to be patient until we get past earnings season. And what did Yoda tell Luke? “There is no try.” Or, as Jim Cramer would put it, “discipline trumps conviction.” Stay disciplined today. I’ll be beck in a bit with a list of my longs and shorts.

———————————————————————————————————-

Whoa, it’s been a straight down day of action since the open and we’re finally stabilized here down about 1%. It could get be a wild day with another 1% intraday move either up or down before this day is over, given that we’ve been so flattish for so long. Easy does it but if you’ve been waiting to buy some of these names that I’m long, now is probably a good time to start your slow, steady, scale-in approach that I’ve been executing in front of you in real-time. Here are my longs and shorts so far — and remember I’m only about 1/4-1/3 as invested as I’d like to be this time in another couple months. Here’s what’s one the sheets:

A little bit of lift this morning in the broader stock markets to counter yesterday’s deflating action. Quarterly earnings reports are indeed catalyzing some big moves. Oh, including Riverbed. Nice 15% pop after the company reported a better than expected quarter and guided higher for next. I bought more last week – hope you did too. I’ll be back with more Riverbed trading psychology and trading analysis in a bit.

———————————————————————————————————-

They say one of the things that separates the great NFL quarterbacks from the the lesser ones is the amount of time the Peytons and Bradys put in watching film. They go back and watch the replays of their best and worst moves so they learn from experience. Great traders do the same. So, let’s walk through the play by play of this Riverbed touchdown and also update on how to trade it now.

Last week when Riverbed and its brethren were getting hit, and the stock had fallen from $37 to $34 I wrote that we should wait for it to settle before buying more. http://tradingwithcody.com/archives/803

The stock is up 15% today because the company reported a blow out quarter.

Let’s talk about what I’m going to do with Riverbed now. Because I used calls I’ve got some nice leverage in this stock now in addition to the still-small common stock position I’ve been slowly trying to build. I’m going to let both the calls and the common ride for now and I might eventually let these calls convert into common if they’re still in the money when the time comes. Sometimes we have to let the winners ride. And Riverbed is a winner, at least for us.

———————————————————————————————————-

Things are heating up for Lender Processing Services…here are a couple articles detailing how bad LPS is losing in the courts. Here’s the best summary of the news from Yves Smith at NakedCapitalism (I recommend reading the whole post).

I don’t know the timing of this short trade, but my confidence and conviction grow as the truth about LPS’s business practices come to light.

———————————————————————————————————-

Thursday 4/14/2011

I was asked yesterday to comment on the budget and debt ceiling “crises” by a subscriber who wondered why I hadn’t been talking much about them and how they could affect our portfolio. After all, those two topics are typically dominating the business pages and business TV shows these days.

The reason I’ve been mostly ignoring those headlines in our trading and analysis is simply because the budget problems and debt ceiling constraints are meaningless distractions. Let’s quantify some relative macroeconomic numbers and you can see for yourself why we need to stay focused on the big numbers and not the little numbers in both our macroeconomic and in our geopolitical analysis:

$38 billion budget cut debates or $600 billion QE2? Debt ceiling crisis of a few hundred billion or $14 trillion total spent on bank bailouts and guarantees in the last 36 months?

At any rate, earnings reports are indeed what are driving our stocks in the near-term and Google will be reporting after the close today. Feet to fire, I think the company will beat the Street estimates on both the top and the bottom line by a slight bit…and as I’ve been saying, the market’s reaction to Google’s report will be a great “tell” for the rest of earnings season. I’ll be updating you guys after the close when Google reports on what to expect for the stock tomorrow.

Other than that, I’m looking to stay disciplined and patient today. Let you know if I pull any triggers.

The only trigger I pulled today was putting a down payment on some acreage here in my hometown of Ruidoso. No stock trades, which is no surprise given my wanting to get through earnings season before doing much more stock/option trading for now.

Here comes Google. Buckle up!

———————————————————————————————————–

Remember — it’s not the news that matters, but the market’s reaction to the news that matters. Google reports…

Topline at $6.54 billion is about 5% better than consensus.

Bottomline at $8.08 per share is inline versus the $8.10 consensus. The media will call it a miss, but it would be a miss if it were say, 18 cents per share instead of 19 cents per share — a 5% miss in that case. A 2 cent miss on a $8 is inline.

Stock getting hit by 4% after hours as the retail and small money managers trade the stock in reaction to the headlines “Google misses!”

Let’s see how it trades tomorrow. I would expect it to trade mostly flattish on these results…but only the market can “tell” us what it actually was expecting for Google’s report.

——————————————————————————————————

Friday 4/15/2011

Another day at the casino, and the markets are trying to crawl higher despite the ugly reaction to a decent fundamental Google report. Google’s down 6% on the day and having a hard time stabilizing, despite my theory last night that we’d likely see it trade to flat today in reaction to that report. Google could still rally before the day’s over, but a 6% hole in the morning like this means it’s very likely it’ll be in the red when the markets close. That said, as I pointed out repeatedly, I didn’t want to buy Google call options or to build the Google position up before we got through this earnings report. I didn’t feel like we’d have much of an advantage of knowing how the stock would react even if we got the fundamentals right…and indeed, the market’s reaction to a decent Google report is an ugly counter to the reaction it gave Riverbed’s strong fundamental report earlier this week. I’m going to double the size of my Google common stock position this morning which will bring it up to being closer in size to some of my other long positions…none of which are more than 1/4 the size I will want them to be by mid-summer when I’ve got this portfolio built back up using my steady-scale-in approach that I’ve been taking.

And as we close out the week, I don’t expect I’ll be doing any more trades other than having doubled my Google long position, using only common stock in that one so far. I’m flying out to Dallas to be a “celebrity” waiter at a charity event for http://www.childabusepreventioncenter.org.In the meantime, here are my positions, in order of size:

I’m off to the alien capital of the world to fly to the urban cowboy capital of the world. See ya Monday!

==

You can get your hands on these updates from me in two different ways — Subscribe to my real-time stock trading service (and get access too all my investment eBooks), http://TradingWithCody.com where I detail my real-time stock and option trades from my personal account for you. Subscribe to my Marketwatch Revolution Investing newsletterwhere I provide weekly fundamental analysis for individual stocks, the broader markets and the macro-economy and get an edited weekly reprint of the trades I post on http://TradingWithCody.com.

At time of publication, Willard, author of Revolution Investing and Trading With Cody, was net long Celestica, Cisco, Cypress, Corning, Microsoft, Riverbed, Google, and Nuance, and short Cablevision and LPS although positions can change at any time. None of the information in this column constitutes a recommendation by Willard of any particular security or that any security or trading strategy is suitable for any specific person.

Story Conversation

About The Cody Word

Cody Willard writes the Revolution Investing investment newsletter for MarketWatch and posts the trades from his personal account at TradingWithCody.com He is the founder of WallStreetAll-Stars.com and the principal of CL Willard Capital. Cody serves as an adjunct professor at Seton Hall University and is on the University of New Mexico Alumni Board. He was an anchor on the Fox Business Network, where he was the co-host of the long-time #1-rated show on the network, Fox Business Happy Hour. Cody, a former hedge fund manager, and his stock picks and economic outlooks have been featured on NBC’s The Tonight Show with Jay Leno, ABC’s 20/20, CBS Evening News, CNBC’s SquawkBox, Jon Stewart’s The Daily Show, as well as in the Financial Times, Wall Street Journal, New York Times, and many other outlets.